Dr. Wish

T2108 and put/call ratio suggest bottom forming;12 stocks at all-time highs last week

@ 8:18 pm

I show my students each semester this monthly chart of T2108 going back to when Worden created it in 1986. (You can access T2108 with Worden chart analysis software.) T2108 measures the percentage of NYSE stocks that are above their simple 40 day moving average of price. The few times since 1986 when T2108 was below 10% the market was severely oversold and did not remain there long. Once, in 1987, it registered its lowest, <1%. I call T2108 the pendulum of the market, moving from extremely oversold to overbought levels. The red and green lines in this monthly chart mark these levels.

Here is a more recent weekly chart of T2108 since 2008.

A maximum of one or two weeks below 10% is the norm. On Friday, T2108 traded as low as 8.6% and closed at 14.6%. In addition, the put/call ratio closed at an extremely high 1.27, indicating that a lot of option traders were buying puts and/or insurance against a decline. This ratio is another contrarian indicator with extreme levels of bearishness usually occurring near short term bottoms. The market always bounces after readings above 1.2.

I closed out my SQQQ (3x leveraged bearish QQQ ETF) on Friday with a nice gain. I did not have the courage to follow my rule to buy the market, SPY (I never do!) on Friday  but am looking to make a small pilot buy this week. (This will be a small initial purchase and I will only add to it on the way up if the lows hold)…….

I love weak markets because only a small number of stocks hit all-time highs. Those that do amidst market carnage may turn out to include new leaders when the market turns up. Imagine a stock hitting an all-time high (ATH) last week! These are stocks worth researching and monitoring because someone is accumulating them. Each of these stocks hit an ATH on Thursday or Friday and are above a recent GLB (green line break-out, see blog glossary above):

COLM, ARRY, BLBD, VIRT, WWE, GRUB, PIRS, INST, MC, MCFT, HAE, HLG.

As an example, this weekly chart shows GRUB’s high volume move up last week after beating earnings estimates. I will look for an entry once it consolidates.

 

The GMI remains on a Red signal and indicates the need for caution. IBD now sees the market in a correction. Both the QQQ and SPY are now below their 10 week averages, a critical sign of weakness.

 

 

 

 

 

 

 

$QQQ daily RWB up-trend gone, safely in cash

@ 8:18 am
GMI1/6
GMI-21/9
T210812%

The nice daily RWB up-trend is now over and could begin a significant BWR down-trend. No one knows how and when this decline will end. With the T2108 at 12, we are near levels where the market has typically bottomed. But in 1987 it reached <1%! Put/call ratio= 1.08, not high enough. When we get a ratio of 1.20 or higher the market will likely bounce, at least short term. No reason for me to return to the market until the QQQ closes (dotted line) back above all of the red line averages.

$XIV disaster; GMI flashes Red; $AAPL in daily BWR down-trend; wading into $SQQQ

@ 10:13 pm
GMI1/6
GMI-21/9
T210824%

The GMI has now flashed a Red signal. This is a sign for me to be extra cautious and in cash or short in my trading accounts. The QQQ short term down-trend is now 2 days old. I have a small position in SQQQ, the triple leveraged ETF that is designed to rise three times as much as the QQQ declines. On Wednesday, the QQQ fell -1.3% and SQQQ rose +3.8%. If the short term down-trend persists, I will add to my position in SQQQ. By definition, SQQQ moves quickly up and down.

Contributing to the weakness in QQQ, AAPL is now in a daily BWR down-trend with all of its shorter averages (red lines) below declining longer term averages (blue lines).

The debacle in the ETN, XIV, may be behind some of the selling in stocks by hedge funds to raise cash. Check out its weekly chart and learn why ETNs can be much more risky than ETFs–a 95% weekly decline!